Why the Middle Class Pays the Alternative Minimum Tax

Tax Planning

Why the Middle Class Pays the Alternative Minimum Tax

The AMT is supposed to affect the wealthiest Americans, not moderate-income taxpayers.

In 1987, one year after the last major overhaul of the alternative minimum tax system, only one tenth of one percent of all returns had to pay the alternative minimum tax.

Today, the alternative minimum tax is no longer just for high-income individuals. Now, many middle-income Americans are paying the alternative minimum tax or having their tax credits limited by its hidden effects.

The Treasury Department expects that more and more people will be paying the AMT over the next few years.

IncomePercentage Who Pay AMT
$75,000 - $100,0002.3%14.7%29.3%
$100,000 - $200,0005.7%16.1%35.6%
$200,000 - $500,00018.8%34.0%64.0%

In fact, in 2010, the percentage of married couples with children paying AMT in all income brackets is projected to be 39 percent.

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More people will be subject to the AMT in the future because AMT exemption amounts have not been indexed for inflation. So as taxpayer income increases through cost-of-living income adjustments, under the AMT, those adjustments are perceived as wealth.


Regular tax brackets and regular personal exemptions are indexed for inflation each year to prevent bracket creep, an automatic upward shift in the marginal income tax bracket through inflation.

For each of the last few years, Congress has approved temporary patches to increase the amount of income exempt from the AMT. But these short-term solutions generally protect new taxpayers from being hit by the AMT.

If you have paid the AMT in past years, it's likely that you will continue to pay it. For 2007, Congress raised the AMT exemption to $66,250 for joint filers and surviving spouses; $44,350 for individuals and $33,125 for married couples filing separately. The last-minute -- but long-expected -- patch protects 19 to 20 million new taxpayers from being affected by the AMT on their 2007 returns.

Without the patch, the government estimated that more than 80% of taxpayers with incomes between $100,000 and $200,000 would have owed the AMT on their 2007 returns.

Return to the AMT Tax Guide